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Most businesses can’t get off the ground without a little financial help, a fact that is especially true in the quick-serve industry. Opening a quick serve, be it through buying a franchise or starting a new concept, requires cold hard cash, meaning any entrepreneur who intends to be a player in the industry has to become friendly with a bank or a broker.

But for those who are new to the process—or for those looking to go through the process again—one of the first terms they’ll likely hear is SBA. That’s especially true after President Obama signed the Small Business Act in September.

The Small Business Administration was formed in 1953 to assist the startup and growth of small enterprises that were taking off in the post-war period with loans and grants. Countless businesses have received a hand from the agency over the years, and when the Small Business Act was signed, operators were given access to even higher loan amounts in an effort to jumpstart business growth.

But misperceptions abound regarding what exactly the SBA does.

“When I’m talking to a prospective business owner, he or she often has no idea about how SBA programs work,” says Denise Beeson, a business loan consultant based in Santa Rosa, California. “There’s always been this misperception out there that the SBA directly loans businesses money, which is far from what it does.”

Instead, the SBA provides a varying percentage of loan guarantees for banks that lend under the agency’s guidelines, which theoretically makes it easier for the bank to loan capital for a startup or expansion.

There are two programs that cover the bulk of SBA-guaranteed loans: 504 and 7(a). A 504 loan is designated for construction and real estate improvements, as well as machinery and equipment; it can go up to $5 million with a 20-year term and has a fixed interest rate. Loans from the 7(a) category go for up to $5 million and can be used for the same purposes as money from a 504 loan, as well as for working capital and lines of credit.

The bank processes and analyzes an application, then, if it clears the loan officer’s desk, it’s sent to the SBA, which must give its OK. Should the borrower default on an approved loan, the SBA repays the bank 75–90 percent of the loan amount.

“For the bank, it’s a win-win,” Beeson says. “They get a solid borrower, and if he happens to default, they get their money back.”

For the borrower, an SBA loan can be had for as little as zero down if there’s substantial collateral or equity in the business, and for up to 40 percent for startups. Rates are typically prime plus 3 percent, as well as loan fees of 1–2 percent.

“It’s really the best lending program available for franchises,” says Dan Rowe, president of Fransmart, an Alexandria, Virginia–based consulting firm. “If you can get in, it’s a great deal.”

Of course, “getting in” can be a big roadblock, especially in these days of tighter credit. “I consider myself extremely fortunate,” says Tom Jones, co-owner with his sister of four Cousins Subs franchises in the Milwaukee area, who used SBA loans to finance his stores. “For my first store, I borrowed a little from family and then put 10 percent down. It was a very smooth, easy process. When we bought our third and fourth stores, we were able to show that we were profitable and we didn’t have to put anything down; in fact, we received an extra 10 percent for working capital.”

After credit tightened in 2009, Jones attempted to gain financing for a fifth store. “The requirements were much different,” he says. “Even though we had proven success, they wanted to see us put 40 percent down, which didn’t work for us, at least not at that time.”

An SBA loan can be had for as little as zero down if there’s substantial collateral or equity in the business, and for up to 40 percent for startups.

While the SBA guarantee is supposed to induce banks to lend, the criteria they use have toughened up. Credit reports, both personal and business, are scrutinized for loan worthiness, and a thorough check of the business’ books or a business plan for startups will be examined for the operator’s ability to make payments.

One key hold-up for many people seeking SBA help is the requirement for collateral. “You’re expected to keep something substantial on the table,” Beeson says. “In the past with startups, people often put up the equity in their real estate as collateral. Now, however, as much of that equity has vanished, their options are severely limited.”

Also at issue are credit reports, as many operators struggle with business and personal credit issues that have plagued them during the Great Recession.

“Quite a few successful business people have had to handle late payments or even bankruptcies during this period that have affected their borrowing ability today,” says Don Johnson, president of Diamond Financial, a business loan broker in West Keansburg, New Jersey.

Finally, character also plays a role in whether or not the bank writes an operator a check. “They’re going to want to know not just your business acumen, but what kind of person you are,“ Beeson says. “Do you have any felonies? DUIs? Are there any judgments or lawsuits against you? These obviously hurt your chances.”

Often, businesses in the food and hospitality industries also have a few more hoops to jump through in order to qualify. “Some banks just do not like food businesses, even those backed by strong national franchises,” Beeson says. “It’s a tough industry, and they want to make sure you’re going to turn a profit and pay on your loan.”

Those buying a franchise can take advantage of the SBA’s Franchise Registry, which is a directory of registered franchisors that banks can use to identify and get information about a particular business. The registry allows banks to streamline their loan processing since due diligence on the franchisor is already completed.

“If the franchise is a solid, proven concept and it’s doing well, you’re going to be looked at more favorably by the bank,” Beeson says. “And of course, if you’re doing well with one and looking to buy another, they’ll also like your application.”

While some might think that climbing Mount Everest in a snowstorm is easier than getting an SBA loan, the picture isn’t entirely bleak for would-be quick-serve operators. “While we’re not in the easy credit era that we used to be, you have to remember that banks still make money-making loans, and the key is to show that you’re a solid business and a good credit risk,” Rowe says.

For startups, that can mean taking on a more experienced business partner. “If you’re talking about the quick-serve industry, banks really want to see that at least one of the main partners has significant management or ownership experience in that area,” Rowe says. “It’s just as important as the capital you’re bringing to the deal. They don’t want to deal with a poor management team.”

It can also pay to work with a loan consultant who is familiar with the market and can help create a winning application package. “Getting all of the paperwork complete and together is half the battle,” Beeson says. “It’s also valuable to have someone who knows where to shop your loan to get the best outcome.”

Beeson says operators should also move their business accounts to the bank that they’ll be applying to before filling out the loan applications. “That shows you have some commitment toward them, and it makes getting through the paperwork easier,” she says.

In addition to the large 7(a) and 504 loans, there is a micro-loan program for startup entrepreneurs with amounts up to $35,000, or up to $50,000 in what the SBA determines are underserved communities.

“This can help as part of the financing package when you can’t qualify for a traditional SBA loan,” Johnson says. “It’s combined with equipment leasing and maybe private money lending.”

Leasing is becoming an alternative to the stringent SBA loan criteria. “In many cases, we can take someone’s down payment that they were going to use for an SBA loan and combine it with a lease agreement for their needed equipment and furnishings, and add in a credit line or an SBA micro loan,” Johnson says. “There are also options like rolling the funds in a retirement account without a tax penalty, or securing a portion of the funds needed through private lenders.

“The payments may be a little higher, but you’re going to get your money faster and there are fewer hoops to jump through,” Johnson says. “This is becoming the main road for startup franchisees because of the SBA loan limitations on them. When they become successful and are ready to expand, then they can go after the SBA funding.”

The main advantage to having a large leasing component is that there’s no collateral requirement for that portion. “The lease payments can also be fully written off on taxes, and you just have greater flexibility,” Johnson says.

Overall, the experts suggest a close investigation of all funding sources, including SBA loans, when searching for capital. “It’s not a bad idea to ask some successful franchisees in your company to find out about their loan experiences to see how it went and who got them the funding they needed,” Johnson says.